Editor’s Note:As tax regulation becomes increasingly sophisticated, tax-related matters are having an expanding impact on both prospective and existing listed companies, affecting areas including IPO review, financial reporting, information disclosure, and capital transactions. This article examines key tax-related risks faced by companies during the IPO process and common tax risks encountered by listed companies based on IPO review practices and publicly disclosed tax adjustment cases. It also provides practical recommendations for strengthening tax risk management and compliance.

01 Increasing Regulatory Focus on Tax Compliance of Listed Companies

As an important pillar of the capital market, listed companies account for a relatively small proportion of China’s total number of business entities, but contribute a significant share of tax revenue. Public data shows that the actual tax payments made by A-share listed companies account for approximately one-quarter of the country’s total tax revenue. Tax-related matters of listed companies not only affect their own operations but may also influence investor judgment through financial reporting and information disclosure. Therefore, tax compliance of listed companies has significant market implications and a demonstration effect.

In April 2026, the State Taxation Administration proposed, as part of the “Spring Breeze Action for Convenient Tax Services,” to provide targeted guidance on tax filings by listed companies and enterprise income tax annual reconciliations for key enterprises, and to issue the List of Tax Compliance Matters for Large Enterprises, further strengthening tax compliance management for key enterprises. Meanwhile, with the enhanced application of big data analytics in tax administration and deeper interdepartmental information sharing, tax authorities can leverage information from invoices, financial statements, tax filings, and equity changes to identify tax risks of listed companies and issue early warnings in a timely manner. Overall, tax supervision over listed companies is increasingly characterized by more precise risk identification, earlier-stage risk management, and continuous compliance requirements. As business models, transaction structures, and investment and financing arrangements become increasingly complex, tax risks faced by listed companies have also become more diversified, involving larger amounts and longer retrospective periods. Public information indicates that since 2026, nearly one hundred listed companies have disclosed tax adjustments, covering a wide range of causes and involving tens of billions of yuan in taxes, late payment surcharges, and penalties.

In the capital market context, the impact of corporate tax-related matters should be assessed comprehensively based on factors such as their underlying causes, amounts involved, duration, and remediation efforts. For companies preparing for an IPO, historical tax issues may become a focus of attention during financial audits, intermediary due diligence, and the IPO review process, potentially affecting application documents, rectification arrangements, and the listing process. For listed companies, material tax adjustments may not only affect current-period profit and cash flow but may also trigger information disclosure obligations and further influence major transactions, financing activities, and investor perceptions. Where such matters involve tax violations, they may also adversely affect the company’s tax credit standing and reputation. Therefore, tax compliance has become a critical compliance consideration throughout the entire corporate lifecycle, including IPO preparation, ongoing operations, and capital market activities.

02 IPO Review Risks Arising from Tax-Related Matters of Companies Preparing for Listing

Tax issues of companies are often formed during their ordinary business operations, equity transactions, and capital market activities. Upon entering the IPO process, issuers are subject to financial audits, legal due diligence, sponsor verification, and stock exchange review. As a result, historical and reporting-period tax matters are further incorporated into the assessment framework for financial accounting, internal controls, legal compliance, and information disclosure. Improper handling of tax issues may cause tax risks to escalate into IPO review risks. Under the current registration-based IPO system, an A-share IPO generally involves several stages, including shareholding restructuring and listing guidance, preparation of application documents and sponsor internal review, stock exchange review and deliberation by the Listing Committee, regulatory registration by the China Securities Regulatory Commission (CSRC), and issuance and listing. Based on IPO review practices, the tax risks faced by companies preparing for listing mainly arise from three areas: whether historical tax matters have been properly identified and resolved, whether tax and accounting treatments are consistent and reconcilable, and whether material tax-related matters may affect the IPO review process.

(1) Risks Arising from Inadequate Remediation of Historical Tax Matters

During the IPO application process, tax issues arising from a company’s early-stage operations are subject to comprehensive review and rectification. Matters such as collections through personal accounts, revenue recognition across different periods, incomplete supporting documentation for cost and expense deductions, irregular invoice management, and inadequate individual income tax withholding obligations may not only affect tax compliance but also impact the accuracy of revenue, cost, and profit recognition. In addition, the application of preferential tax policies, such as the high and new technology enterprise preferential tax rate and additional deduction for research and development expenses, needs to be reassessed based on the company’s actual operating conditions during the reporting period, including whether the relevant eligibility criteria and supporting documentation remain valid. Historical equity-related matters are also key areas of review. Transactions such as conversion of net assets into shares, capitalization of retained earnings, transfers of equity interests at below-market prices, restoration of nominee shareholding arrangements, and employee shareholding plans may involve individual income tax, corporate income tax, and the determination of tax bases. Where historical tax issues involve significant amounts or have not been fully remediated, they may further affect the financial data for the reporting period and the foundation of the IPO application.

(2) Risks Arising from Inconsistencies Between Tax and Accounting Treatments in Review and Disclosure

During the IPO application process, tax-related matters are subject to review by auditors, legal advisors, and sponsors. Financial statements, tax filings, and IPO application documents may differ due to factors such as recognition timing, measurement rules, and consolidation scope. However, such differences should be reasonably explainable based on the same underlying business facts. For example, where revenue reported in financial statements differs from revenue reported in VAT filings, the company should clarify the relationship between accounting revenue recognition and the timing of tax obligations. Similarly, where the R&D investment disclosed in the prospectus differs from the amount claimed for additional R&D expense deductions for tax purposes, the company should explain the differences in expense classification, scope of aggregation, and tax deduction requirements. In addition, for related-party transactions, attention should be paid to whether transaction pricing is consistent with the actual functions performed, assets utilized, and risks assumed by each party, and whether the pricing arrangement complies with the arm’s length principle.

(3) Risks of IPO Review Triggered by Material Tax-Related Matters

Once material tax-related matters involve issues such as the authenticity of transactions and the reliability of supporting documentation, they often go beyond ordinary tax treatment and become subject to IPO review. A case involving business promotion expenses of a pharmaceutical company seeking an IPO is illustrative. The company submitted its IPO application at the end of 2020 and voluntarily withdrew the application in January 2022. In October of the same year, the China Securities Regulatory Commission (CSRC) issued a warning letter as a regulatory measure. The regulatory document stated:“Upon investigation, we found that during the company’s application for an initial public offering and listing, certain original supporting documents for business promotion expenses were abnormal; the company subsequently supplemented, replaced, or removed certain abnormal original documents, and some sales promotion activities had not actually taken place.” On July 21, 2026, a publicly disclosed tax notice issued by the tax authorities in Nanning stated that 12 VAT ordinary invoices issued by a marketing service company to the pharmaceutical company in 2021 were issued despite the service provider “lacking the ability to provide the services and not actually providing the services,” and were therefore determined to constitute false invoicing. The relevant matters extended from the authenticity of promotional activities to invoice compliance, expense recognition, and corporate income tax deductibility, further involving the reliability of financial data, internal controls, and IPO application documents. This case demonstrates that once a tax-related issue involves the underlying authenticity of transactions, it may simultaneously become subject to both tax review and capital market regulatory scrutiny.

03 Tax Risks in the Daily Operations and Capital Activities of Listed Companies

(1) Improper Application of Tax Incentives and Special Tax Treatment for Restructuring Transactions

First, enterprises enjoying tax incentives such as the preferential tax treatment for High and New Technology Enterprises and the Western China Development Program are generally required to continuously satisfy relevant qualification criteria and business indicators. Obtaining the relevant qualifications does not mean that the preferential tax treatment can automatically continue to apply in subsequent years. Changes in business scope, revenue structure, R&D activities, or other operating conditions may result in the failure to meet the applicable requirements, thereby triggering the risk of corporate income tax and late payment surcharges being recovered. In addition, when enterprises apply special tax treatment in restructuring transactions such as equity acquisitions, asset transfers, and mergers, they must satisfy various requirements relating to equity relationships, reasonable commercial purposes, accounting treatment, and continuity of operations. The existence of a commercial rationale, such as internal group restructuring, does not automatically qualify a transaction for special tax treatment. In practice, certain listed companies have been required to pay substantial amounts of additional corporate income tax and late payment surcharges due to their failure to meet the relevant conditions for special tax treatment in intra-group asset transfers. Such risks generally arise from inaccurate assessments of tax policy requirements or inconsistencies between the actual implementation of transactions and the original basis for tax treatment, ultimately resulting in retroactive tax adjustments for prior years.

(2) Unreasonable Pricing and Profit Allocation in Related-Party Transactions

Related-party transactions are common within corporate groups. Among them, cross-border related-party transactions are more likely to become the focus of tax adjustments due to the involvement of different tax jurisdictions. When enterprises conduct transactions such as sales of goods, provision of services, or licensing arrangements with overseas related parties, they should follow the arm’s length principle and determine transaction pricing and profit allocation based on the actual functions performed, assets utilized, and risks assumed by each party. Where an overseas related party performs limited functions and assumes limited risks but receives profits disproportionate to its actual contribution, the arrangement may trigger special tax adjustments. In practice, certain listed companies have undergone special tax adjustments for prior years’ cross-border related-party transactions due to pricing issues between domestic manufacturing entities and overseas related trading companies, resulting in the payment of substantial additional taxes. Such risks often involve multiple tax years. Tax authorities typically assess profit allocation based on the enterprise’s actual business activities, value contributions, and relevant transfer pricing documentation. Reliance solely on contractual arrangements or internal group pricing policies is generally insufficient to fully demonstrate the reasonableness of related-party transaction pricing.

(3) Irregularities in Invoice Management and Revenue and Cost Recognition

Where an enterprise has circumstances such as inconsistencies between the invoicing entity and the actual transaction arrangement without reasonable justification, transactions lacking genuine business substance, discrepancies between revenue recognition periods and tax filing periods, or non-compliant supporting documentation for cost and expense deductions, it may face risks including VAT input tax reversal and corporate income tax adjustments. Where such matters involve fictitious transactions or the issuance of false invoices, the enterprise may also be subject to administrative penalties. If the circumstances constitute a criminal offense, the relevant responsible parties may be held criminally liable in accordance with applicable laws. Such risks are closely related to business processes and financial accounting practices and are more likely to accumulate in enterprises with large transaction volumes, complex management structures, or relatively weak controls over subsidiaries.

(4) Omission Risks in the Administration and Filing of Other Taxes

In addition to VAT and corporate income tax, other taxes such as environmental protection tax, property tax, resource tax, and land appreciation tax may also result in significant tax adjustments. These taxes are often closely associated with specific assets, business activities, or regulatory requirements. For example, matters such as the disposal of solid waste and related supporting documentation, the actual use of real estate, the volume of resource extraction, and the determination of tax bases may directly affect tax obligations and the amount of tax payable. As these matters are dispersed across production, operations, and asset management processes, if enterprises fail to timely reflect changes in business activities in their tax filings, related risks may accumulate over multiple years and ultimately result in substantial additional tax payments and late payment surcharges.

(5) Untimely, Inaccurate, or Incomplete Disclosure of Tax-Related Information

After a listed company encounters material tax-related matters, it may also face risks associated with information disclosure. Common situations include failure to make timely disclosures after receiving important tax documents, disclosing only the tax payment results without adequately explaining the underlying reasons, relevant periods, and financial impacts, or failing to provide timely updates on the progress of tax disputes or related matters. Whether a tax-related matter requires disclosure should be assessed based on factors such as the amount involved, the nature of the matter, and its potential impact on the company’s financial position, operating results, and investors’ decision-making. The disclosure timing should not be determined solely by whether the relevant taxes have been fully paid. In practice, after receiving a Tax Treatment Decision Notice issued by the tax authorities, one listed company estimated that the relevant late payment surcharges would reduce its interim net profit for the period by more than RMB 35 million, representing 16.1% of its audited net profit for the previous year. However, the company did not make a disclosure until it had completed the tax payment and obtained proof of tax clearance, and it was subsequently subject to regulatory attention from the stock exchange for untimely disclosure. Under the current securities regulatory framework, information disclosed by listed companies must be true, accurate, complete, and timely. Companies and responsible personnel that fail to comply with disclosure obligations may be subject to regulatory measures, disciplinary actions, or administrative penalties. Where investors suffer losses as a result, the relevant parties may also bear civil liability for compensation in accordance with applicable laws.

04 Proactive Tax Governance Approaches for Listed Companies

(1) Establish a Tax Risk Internal Control Mechanism Aligned with Business Operations

Enterprises should integrate tax management into key business processes, including project initiation, contract execution, procurement and sales activities, invoice management, accounting treatment, and tax filing, while clearly defining the responsibilities of business, finance, tax, legal, and internal audit functions based on the company’s industry characteristics, business model, and group structure. For enterprises with large-scale operations or extensive geographic coverage, dedicated tax management positions or functions may be established as appropriate to implement categorized management of domestic and overseas operations, major transactions, and key tax areas. At the same time, enterprises can leverage information systems to establish tax risk indicators, conduct cross-checks among invoice data, business information, financial records, and tax filings, and generate alerts for potential anomalies. Companies may also conduct regular tax self-assessments or targeted tax reviews based on their risk profile, enabling timely identification and remediation of both historical tax issues and tax risks arising from daily operations.

(2) Strengthen Ongoing Monitoring and Advance Management of Material Tax Matters

Enterprises should continuously monitor changes in tax policies, tax administration practices, and business operations, regularly identify risks in key areas such as tax incentives, related-party transactions, and invoice management, and promptly address tax issues arising from business adjustments or changes in eligibility requirements for tax treatments, so as to prevent risks from accumulating over time. For major matters such as IPO applications, mergers and acquisitions, restructuring transactions, asset disposals, cross-border investments, and equity incentive arrangements, enterprises should identify key tax risks before implementing relevant plans, assess the potential tax burdens and compliance implications of different transaction structures, and develop response plans in advance. For major and complex matters involving significant uncertainty in the application of tax policies, enterprises may communicate with competent tax authorities based on the specific circumstances. In regions where a tax ruling mechanism has been established, enterprises may also apply for advance rulings in accordance with applicable regulations to enhance the certainty of tax treatment.

(3) Improve the Coordinated Response Mechanism for Material Tax Matters

When material tax-related matters arise, enterprises should promptly assess their potential impact on tax treatment, financial data, and information disclosure, and establish consistent internal positions and response approaches based on the development of the matter. For matters involving prior years, enterprises should also evaluate whether adjustments to historical financial data, amendments to existing disclosures, or improvements to internal control mechanisms are required. For matters involving complex facts, significant amounts, or disputes over the application of tax policies, listed companies may engage external professional advisors as appropriate to assist with analysis and response, thereby enhancing the professionalism and consistency of the handling of material tax-related matters.